Some funding options to finance your startup include bootstrapping, crowdfunding, depending on bank loans, or seeking angel investors, venture capitalists, or other external funding sources. If you have a good business plan and are willing to give up some control or ownership of your company, your best option might be to look for investors. And once you find an investor, the first question you need to ask yourself is how much funds should you raise?
There is no one-size-fits-all answer to this question, as the total amount you should raise will depend on several factors, including the size and scope of your business, industry, current market conditions, your personal financial status, and other such variables. Startup funding can also pose some challenges due to the lack of a track record or the perceived riskiness of the venture.
Furthermore, once your business begins to grow or expand, you may have no time or resources to devote to fundraising. That is why, as a general rule of thumb, it is always better to err on the side of caution and raise as much capital as possible without overleveraging your business. Doing so will give you a cushion in case of unexpected expenses, delays, or cost overruns.
A significant risk of depending on external investors is that you may end up giving up too much equity or ownership in your company while striving to raise the money you need. That is one of the reasons why it is inadvisable to keep raising money. Secondly, it’s easy to overspend your startup funds if you’re not careful. Before you realize it, you would have blown through your budget and may be left with no money to keep your business afloat.
To avoid this pitfall, be mindful of your spending and create a detailed budget for your startup costs. Track your progress against the budget to ensure you’re not spending more than the budgeted amounts. And most importantly, don’t be afraid to say no to unnecessary expenditures. To avert cost overruns and poor financial management, always budget all your expenses, assuming you will never have another round of funding.